America’s Standard of Living at Stake

Are consumers confused? Earlier this week the Conference-Board’s Consumer Confidence index fell slightly on concerns consumers have over the short-term health of the economy. But they seem more bullish long-term. Lynn Franco, director of the Conference-Board’s Consumer Research Center said “Consumer Confidence pulled back slightly in March, after rising sharply in February. The moderate decline was due solely to a less favorable short-term outlook, while consumers’ assessment of current conditions, on the other hand, continued to improve.” Meanwhile in the University of Michigan Consumer Sentiment survey, consumers had a positive take on current conditions, but are souring on their future expectations.

The cause of consumers’ confusion may have been revealed today when the personal income and outlays report was released by the Bureau of Economic Analysis (BEA). The report from BEA disappointed economists with lower than expected increase in incomes. Employees made 0.2% more in February than they did in January—only half the increase of 0.4% growth that a panel of economists surveyed by Bloomberg was expecting. Perhaps most indicative of the trouble this puts savers in is that Americans spent 0.8% more in February than they did in January. When consumers spend faster than they earn, their savings decline until they are forced to take on debt. Debt will eventually compound the problem if their earnings growth fails to accelerate. Most alarming in the BEA report was a 0.1% decline in real incomes you can see on the chart below. Continued reductions in real incomes will decimate Americans’ standard of living, forcing them to sacrifice.

American consumers are confused—not unlike many economists. The root of that confusion may be the barrage of false signals being sent to them. Fuzzy election year math, continuous bait and switch from the Federal Reserve, and an ever changing tableau of future tax rates are feeding Americans’ uncertainty.